MH Real Estate Investment Blog

I took some time off to spend with the family. We have added a beautiful 6-month old baby boy to the family and as much as I enjoy writing and discussing real estate, family is priority number one. Anyway, mother and son are doing great so it’s back to business as usual.

For the countless time, headlines across America screamed,”the housing market is starting to heal” because existing home sales rose 4.3% in January. Don’t get your hopes up quite yet as this increase was somewhat of an illusion.

What many people failed to notice is that December sales were downwardly revised from a 4.61 million to a 4.38 million pace. There are 2 approaches you can take to the January numbers.

First, it is highly likely that January’s results will be downwardly revised eliminating the increase. If you go back and look at the numbers, 8 of the last 10 months have had statistically relevant downward revisions from the general consensus.

Secondly, in case the numbers aren’t downwardly revised, the improvement in January could have been due to carryover from the deals that didn’t book in December as originally anticipated which negates the notion that somehow the economy is improving.

Let’s also be cautious before trumpeting the improvement in employment numbers as a reason behind a boost in the housing market. I was in lending for a while leading up to the subprime debacle and we were aggressive lenders; however length of employment was still an important criteria. It is good that people are beginning to find jobs according to the government (even if we can debate the reality of that notion) but to think that is going to make a difference this year is foolish with as tight as lending guidelines are. My guess is that labor improvement this year will point to a stronger recovery in the housing market next year as people feel more comfortable that they are going to keep their job and have had some time to put away money for a down payment.

I’m not going to take the position that everyone needs a property manager for their rental units, but I will say that rental properties need more time and attention than most owners think they are going to have to put into them.

Dealing with tenant concerns and complaints(especially in multi-unit complexes) can take up tremendous amounts of time not even considering the energy that must be put into coordinating property repairs.

One area that I see get skipped over is the ‘property inspection’ especially if the tenant is paying the rent on time. The general thought is the tenant is paying the rent, they aren’t calling me to for repairs, everything must be ok….wrong!!!

This is what can happen with that line of reasoning –

We do semi-annual inspections in our high-rent districts and quarterly inspections in our more economically challenged markets to make sure our clients are being adequately protected.

So the next time you’re thinking of skipping that property inspection, take a look at the picture above and scoot on over to the property.

This law is applicable for all areas of California; however it is even more likely to come into play in the counties of Riverside and San Bernardino which traditionally rank higher in number of reported domestic abuse cases.

What the law(Code of Civil Procedure 1161.3) states is that a landlord shall not terminate a tenancy or fail to renew a tenancy where a tenant has been a subject of domestic abuse.

In the past the easiest way to deal with the disturbance was simply to issue a notice to vacate; however that is no longer possible. There are several ways to deal with the problem.

The first way is to make sure you are adequately screening your potential tenants. A background/criminal check in conjunction with a credit check can reveal potential red flags and help you avoid a potential future pitfall altogether.

Hindsight is always 20/20, so if you already find yourself in this situation, it is important to document every violation no matter how small so you can provide legitimate reasons not related to the domestic abuse issue as to why you did not renew the lease or as to why you issued a notice to vacate.

This written documentation is extremely important because you never know if your tenant is going to call an attorney and try to make a quick buck off you. Our office retains a file on each tenant with copies of the notices of violation that were sent out as well as a log of all phone calls made in case we have to produce records for a court case.

Dealing with tenant issues like these can be challenging but worse very expensive if not handled properly. It is always in your best interest to consult an attorney or other professional before tackling problem tenants.

The home warranty is almost as ubiquitous as the home mortgage, a typical inclusion in any real estate transaction. It is my professional opinion that these programs are a good deal to have on any older rental property as the combination of age and tenant abuse make it likely that you will get your money’s worth out of the program.

American Home Shield is the major provider of these programs and they recently settled a class-action lawsuit alleging they gave illegal kickbacks to agents and/or brokers to promote their warranty program.

So if you bought a warranty program from AHS in the last couple of years you may be entitled to a piece of the class action pie. You can find additional details here http://faughtclassaction.com/

We typically counsel property owners to collect the first month’s rent along with the deposit at the time the lease agreement is signed to avoid this situation, but at times an owner will simply collect the deposit without getting the first month’s rent.

What happens if the tenant changes their mind before taking possession of the property?

You can likely keep some of the deposit, but not necessarily all of it.
Had the applicant and you signed the lease agreement? If not, you probably can’t keep any of it if she took you to court unless the deposit was actually a holding deposit for which you had a written agreement or could otherwise prove the terms of the deal.

If it was a holding deposit without a signed lease, is there a signed agreement that specifies what happens to the funds in the event of default by the applicant?

The best situation of course is to have a signed lease agreement in which case you may be able to keep the entire security deposit but most likely you would be entitled to a pro-rated portion of the deposit based on lost rents.

Many of you have had questions regarding this because it has come up frequently in economically depressed neighborhoods.

If you don’t serve him the suit while you know where to find him, you may never be able to sue him. In order to sustain a law suit, it is necessary to serve the defendant in the manner or manners required by the law of the particular state. In some jurisdictions, this means that the defendant must be physically handed a copy of the complaint and summons. Other jurisdictions allow service by mail, usually Certified or Registered Mail being required, in which case the defendant will often avoid accepting the mail. However, in this event, as well as for obvious attempts to avoid physical service, evidence showing the facts will often cause a judge to ignore the failure of service.

You should have the service done by an independent process server. First, this avoids a chance of an unfriendly confrontation. Second, it eliminates the judge having to decide which party is telling the truth when the defendant claims he was not properly served and the plaintiff claims he was because, absent serious evidence to the contrary, he will almost certainly believe the process server. In many jurisdictions the process server can be either a private for-hire server or an official officer of the court such as a deputy sheriff.

Once you obtain a judgment against the defendant, you can collect from him in any state where you can find him during the term for which the judgment remains valid. Although laws vary among states, judgments are typically good for 5 or more years and can usually be renewed for at least one additional equivalent period. His only defense would be that the court giving the judgment did not have jurisdiction over the matter, a defense not likely to be very useful in the case of an eviction or related matter.

Unless you have experience in appearing in eviction proceedings, you might consider hiring an attorney to both complete the eviction and file the suit, assuming being represented by an attorney is allowed in Small Claims court in your jurisdiction. In spite of the cost of an attorney, using one can actually be cost effective. A mistake in following the legal procedures can result in having to start over after weeks of waiting for the day in court. For anyone except the most experienced landlord, it is even more important to be represented by an attorney if the defendant uses an attorney.

Most jurisdictions will have experienced competent attorneys who do nothing except handle evictions and related matters. They will also be familiar with particular idiosyncrasies of individual judges. Rather than see who has the largest yellow page ad, it is best to get recommendations from other landlords or management companies because the best attorneys have plenty of business without advertising.

Finally, if he disappears after being evicted, you probably will have a good chance of finding him in the future, particularly after he has established permanent residency somewhere. In addition to the various social networking sites where people tend to provide a lot of personal information that might help track him down there are innumerable Web sites that offer services related to finding people for reasonable fees.

Here is our June Newsletter. This is a great way to stay up on local trends plus get a sense for what is going on at the national level.

Let me start off by writing that I’m bullish on real estate as an investment. Especially in these uncertain times it is an excellent hedge against inflation. David Lereah, chief economist at the National Association of Realtors states, “In the past, investors bought gold as a hedge against inflation… now they buy real estate”.

Now it is time for the other shoe to drop. As a member of a number of real estate sites and publications, I’ve been seeing tons of headlines lately along the lines of “Real Estate Is Back” or “Now is the time to Buy.” These articles typically trot out statistics showing how cheap home prices are relative to the past decade and mention that interest rates are still at historic lows. Both statements are quite accurate; however they do not mean that real estate is good investment option.

Take the dotcom boom that occurred about a decade ago as an example. Investors were frothing at the mouth to buy and send prices to dizzying heights only to watch values plummet. There were plenty of opportunities to buy as stock prices plummeted and they would have technically been great buys relative to their prior valuations; however many of these companies simply ceased to exist and it would have been an investment mistake to dump more money into them. The same situation now applies to real estate. Sure the market as a whole has plummeted, but there are still only a few gems among the many real estate turds and it is up to the savvy investor to navigate this minefield.

We continually talk about supply vs. demand as a reason for pricing, but what has been forgotten is that there is another important matrix risk vs. reward. Prices and interest rates are low because they have to be. These are the main factors to induce would-be buyers to commit funds to a long-term investment decision.

Don’t get caught up in the hype of relative valuations, do your homework and buy quality properties in neighborhoods that have desirable demographics. These are the markets that are likely to rebound in short order as the economy stabilizes and consumer confidence improves.

With the U.S. deficit skyrocketing like a Saturn V launch vehicle, there has been quite a bit of talk about how to reduce the country’s debt. One option that seems to be considered is the mortgage interest tax deduction.

This tax deduction is extremely important, and is one of the primary reasons why Americans buy homes. When someone purchases a home, usually there is a home loan that goes along with it. The majority of the interest is paid in the initial years to the lender or bank, with very little being paid toward actual house. This reverses as one moves closer to the end date of say a 30 year mortgage. This schedule is called the mortgage interest amortization schedule.

If an individual, for example, has a mortgage payment of say $1,000 per month, the first years will likely show $800 being paid in interest to the lender / bank, while only $200 is paid toward the home. So at the end of the first year, an owner may have paid $12,000 in mortgage payments, but only owns $2,400 ($200 * 12 months) more in the actual house.

The upside to this payment is that the remaining $9,600 is all tax deductible. In addition, the tax deduction is an “above the line” tax deduction. Most deductions are “below the line” and are subject to many restrictions, not least of which being income. With below the line deductions, you may have had business expenses or other tax deductions that you may be unable to take because of your income level. Above the line deductions are taken with much higher levels of income, thus allowing a much larger percentage of the population to take advantage of this deduction.

So what is going to happen to this deduction? Is it really going away? Well, despite the threats looming from Washington it is unlikely that such deductions will go away simply due to the economic backlash that will ripple across the US economy. Representatives may attempt to tout this as something to attack the wealthy on, but keep in mind that this deduction only applies toward one’s primary residence. Of course, that doesn’t keep investors from forming a real estate business and writing off the interest as a business loan, so in the end, it would really only hurt middle class families and non-investors. I can’t imagine that this hasn’t been thought through by the current administration, so my bet is that it’s not even being seriously considered.

Bankruptcy has once again become an increasingly popular tool to reorganize or eliminate debt during this financial crisis. What you may not know is that while your first mortgage is protected if you plan to remain in the home, it may be possible for your second mortgage to be eliminated if (as is the case for many) the value of the home is less than what you owe on the first mortgage.

Bankruptcy law allows you to list the 2nd mortgage as an unsecured debt if there is no equity to cover it. This is helping many homeowners bring the debt load on the home back into line with the current valuation of the property.

A caveat, you must successfully complete the bankruptcy repayment plan to get the mortgage waived; however that is usually a much easier accomplishment once your debt load has been reduced.

Be careful though, this applies to a primary residence, investment homes have different guidelines which apply, so if you’re considering bankruptcy and have multiple properties make sure you talk to an attorney who is familiar with how real estate is treated in bankruptcy.